PVR catches the eye of China's richest man Wang Jianlin

A blockbuster buyout is in the works in India’s premier movie theatre company.

Almost nine months after exploring an alliance, Asia’s largest film group and theatre operator Wanda Cinema, owned by China’s richest man, Wang Jianlin has revived talks with Ajay Bijli, the promoter of PVR Ltd, to buy a controlling stake in India's largest multiplex operator, said at least four sources aware.

Dalian Wanda Group has started diligence on PVR’s books as a prelude to make a formal offer to acquire the company.

Bijli's, who control 25.26 per cent of their flagship, may cash out entirely or may retain a small stake as a junior partner while the financial investors Renuka Ramnath's Multiples and L Capital Asia, a private equity firm backed by global luxury conglomerate LVMH, plan to sell their shares. Multiples is the 2nd largest shareholder in the company with a 12.5 per cent stake as per the latest disclosures.

The negotiations with Wanda Group had initially started for a partnership with joint control earlier this year, added the sources mentioned above, but is now veering towards a change of control share transaction.

Once successful, it would also pave the way for the Chinese giant to make a grand India foray, further consolidating Wanda Cinema’s dominance in the Asian region, where it is expanding in a rapid pace. India is the world’s second largest film market.

PVR’s current market capitalization is Rs 5,490 crore. The transaction is likely to trigger an open offer to public shareholders as well, multiple sources privy to the information told ET. In the last 3 months the PVR stock has appreciated 32.04 per cent and closed on Thursday at Rs 1183.15/share.

However one of the sources mentioned above said there is still no guarantee that the talks will conclude in a transaction.

"Bijlis will seek a significant premium to the current market price. I won’t be surprised if there is a deal at 10-15 per cent premium to even the current levels even after the run up," said an industry official on condition of anonymity as the talks are in private domain.

When contacted, PVR spokesperson said the news was incorrect. "We would like to inform you that the trailing news is completely false and erroneous."

Mails sent to Wanda Group and Multiples remained unanswered till the time of going to the press, while L capital said they sold off most of its stake and declined to comment further. Currently, it has less than 1 per cent stake in the company.

Humble beginningsGrowing mainly through acquisitions, PVR Cinemas is one of India’s most trusted brands that attract large chunk of film viewers in a country. From a single cinema hall in South Delhi, the company has become India’s largest film exhibition chain with presence in 17 states with 553 screens.

The company was earlier known as Priya Cinema in Delhi, which was taken over by Ajay Bijli's father in 1978. Prior to that, the Bijli family used to run a transport and logistics firm called Amritsar Transport Company.

At the age of 23, Ajay Bijli, the current chairman and managing director, assumed the charge of the cinema business and totally revamped the operations. The company initially was a 60:40 joint venture between Priya Cinemas and Australian media major Village Roadshows. Combining both companies, the new film exhibitor was renamed as PVR.

In 2003, Bijli took a Rs 40 crore funding from ICICI Venture and bought out Village Roadshows. Nearly a decade later in 2012, it acquired rival multiplex chain, Cinemax to become the largest Indian multiplex chain. Again in 2016, Bijli, also a fitness freak and a foodie, bought out DLF’s DT Cinemas to become the undisputed market leader.

PVR was a darling of PE investors and had received multiple rounds of capitalinfusion. After ICICI Venture exited in 2007, its former CEO, Renuka Ramnath, who raised a fresh fund called Multiples, invested Rs 150 crore in PVR in 2012 to help close the Cinemax transcation. In the same year, Bijli also raised around $20 million by selling stake in PVR Leisure - a former subsidiary which eventually was rolled back into the parent - to L Capital.

The $40 billion Wanda Group, is a Chinese multinational conglomerate and the world's biggest private property developer. It is also the world's largest cinema theatre chain operator. It has already announced its massive India investment plans last year - $10 billion over the next 10 years - to construct industrial townships and retail properties. This July, it has reportedly made an $8 billion to $10 billion offer to acquire iconic Hollywood’s iconic Paramount Pictures.

The Indian market is currently dominated by four major companies. PVR dominates the market with 553 screens in 121 locations across 47 cities. Its chief rival Inox Leisure has 420 screens and Carnival Cinemas, which acquired Reliance Anil Dhirubhai Ambani Group’s film exhibition business, has 341 screens. India's overall entertainment industry is expected to grow to $40 billion by 2020 with a 13 percent CAGR between in the next four years, PwC said in a note on June 8.

"Cinema revenues and admissions will continue to grow, but India will continue to remain underserved as regards access to multiplexes," it said. Out of the total 10,000 screens nationwide, 25 per cent is the cumulative share of multiplex operators.

Analysts pick PVR Ltd for its premium locational presence and branding and leadership in organic growth, monetization of footfalls (F&B/ad revenues) and profitability. The company reported a consolidated profit after tax of Rs 119.3 crore for FY 16 against Rs 11.6 crore in FY 2014-15 on the back of consolidated revenue for FY 2015-16 of Rs 1,897 crore, up 28 per cent from the previous fiscal.

"PVR is at an inflection point, and is now generating free cash flow and deleveraging swiftly. GST implementation should be positive for sentiment in the near term. Assuming a GST rate of 18 per cent and benefits thereof retained 50 per cent/100 per cent by the company (not a given, and not in our assumptions), then there could be further upside of 12 per cent/25 per cent to its FY18E EPS," UBS said in a note on August 3.

"The multiplex industry is set for multiyear growth supported by demographics, rising income levels, propensity for movies and huge supply of content. We highlight that Hollywood and regional content have helped reduce content volatility to some extent in the recent past — this trend in encouraging. Implementation of GST will improve profitability and return ratios of the business," a recent report from Kotak Securities added.